On 19 June 2017, the Competition Commission (Commission) announced that it has finalised its investigation and referred a case against Rooibos Limited (Rooibos), the largest processor of rooibos tea to the Competition Tribunal (Tribunal) for abusing its dominant position by allegedly inducing rooibos tea farmers not to deal with its rival rooibos tea processors in contravention of s8(d)(i) of the Competition Act, No 89 of 1998.
Rooibos tea is a unique caffeine-free product containing extremely high levels of anti-oxidants and is only grown in the Western and Northern Cape regions of South Africa. Accordingly, the source of supply is limited and it is imperative that tea processors have infinite access to rooibos tea from commercial farmers in order to remain competitive in the market. The value chain is structured such that the tea processors purchase rooibos tea from commercial farmers in bulk. In turn, the rooibos tea is dried and treated and then on-sold to the local packers as well as the export market as a bulk product for packaging into final products and other value-added products.
Rooibos inherited the assets and the monopoly position previously occupied by the Rooibos Tea Control Board to, among other things, regulate the marketing, pricing and research in the rooibos tea industry. The crux of the Commission’s investigation focused on Rooibos’ monopolisation of rooibos tea supply from commercial farmers in order to foreclose its competitors at the processing level of the value chain or prevent the expansion of its rivals in the market.
In 2014, Rooibos introduced two exclusionary tactics which had the alleged effect of locking-in the supply of rooibos tea from commercial farmers which left rival processors frustrated. Firstly, long-term supply agreements were concluded between Rooibos and commercial farmers, in terms of which the latter were required to supply prescribed volumes of tea to Rooibos for a period of four years. Secondly, commercial farmers were required to supply up to half of their production yield to Rooibos in exchange for access to production research output.
In the past, the Commission has faced endless challenges in successfully prosecuting and addressing abuse of dominance cases. In order to combat these challenges, the Commission has undertaken to establish a more proactive approach to investigate abuse of dominance in key sectors in the South African economy as outlined in its Annual Performance Plan 2016/2017. It remains to be seen exactly what measures the Commission has implemented in prosecuting this case before the Tribunal.